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H.E. Butt Grocery Co.: A Leader in ECR Implementations

H.E. Butt Grocery Co.: A Leader in ECR Implementations. Case Study. Industry Focus. Huge, $376B industry heavily fragmented top 5 companies account for only 21% of sales Grocery chains under great pressure from Wal-Mart type store to become more efficient

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H.E. Butt Grocery Co.: A Leader in ECR Implementations

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  1. H.E. Butt Grocery Co.: A Leader in ECR Implementations Case Study

  2. Industry Focus • Huge, $376B industry • heavily fragmented • top 5 companies account for only 21% of sales • Grocery chains under great pressure from Wal-Mart type store to become more efficient • Massive inefficiencies present in channel • forward buying • poor inventory management

  3. Industry Focus (cont.) • Industry is highly geographically focused • top 3 companies in each region have 70% of market • Food retailing industry is an industry where technology has potential to effect significant restructuring

  4. Company Focus • Mid-sized food retailing chain • 200 stores and 7 warehouses • ranked #13 in country • sales of $3.2B • strong commitment to technology • Dominant presence in region (Wal-Mart also located in this region)

  5. Company Focus (cont.) • Heavy growth in sales/employee in last decade • Growing in org. complexity as it handles more products and faster inventory • Recent commitment to EDLP strategy • Recently reorganized around “category management” • led to replacing all but 1 of its buyers

  6. Company Focus (cont.) • HEB’s new incentive plan is built around profits • HEB is concerned with Wal-Mart’s contract with P & G for new EDI-based order entry system • Little room for failure given their size and position in market place with Wal-Mart

  7. Firm Infrastructure Human Resource Management Competitive Technology Development Procurement of Resources Factory/ Warehouse Warehouse Storage/ Shelves Advantage Porter's Value Chain Manufacturers Stores Distributors

  8. Threat of new entrants Rivalry Among Existing Competitors Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products or Services Interaction between opportunities and threats Porter’s Five Forces Model

  9. Key Success Factors at HEB • Ability to maintain low pricing (core differentiator) • Use of technology to drive costs down and sustain them (technology seen as key enabler) • Highly reliable technology (system failure can lead to significant sales losses) • Properly timed investments in the tech curve

  10. HEB Technology Initiatives • Unix Mini-computers linked to POS and then linked to HQ via VSAT system • e-mail, automated attendance reporting, automated DSD, Motorola hand radios • Ordering done by scanning labels and entering quantities into computer then uploading, still largely manual checking

  11. HEB Technology Initiatives (cont) • CRP and EDI • PC pilot with P & G • moved to m/f • grew to 60% of orders • improved stockout levels, transportation costs, elliminated forward buying, lowered inventory costs • some up front costs for vendors

  12. Efficient Consumer Response • See http://www.fmi.com • One aspect was to link POS to CSO to implement CRP • Optimize retail space and selection • Maximize promotions in value chain • Maximize new product introductions

  13. Situation at HEB at end of case • 1994, 60% of inventory handled via CRP • 96% of orders handled via EDI • Generating 100X more data • Warehouse stockouts dropped from 6% to 1% • Potential problem of POS accuracy • 90-95% accurate; can’t support on-line access • Threat of new entrants? • Any barriers needed?

  14. Update to HEB case • Major initiative to improve scanner accuracy • improved scanner maintenance • replaced older scanners • disqualified vendors for poor bar coding • improved accuracy to 99.98% by end of 1995 • increased data 1000x • asset and inventory responsibility moved down the value chain • pay via AFT

  15. Update to HEB case (cont.) • 1998 HEB initiated Peapod • designed for two income families • PC-based home grocery shopping • depends more on efficient warehousing rather than shopper-friendly stores • Loyalty cards started by Tom Thumb • HEB debating whether to start one • system cost vs. cost of not knowing customers

  16. Update to HEB case (cont.) • HEB began performing “basket analysis” • 1997 FMI report encouraged them to reduce number of products carried • HEB elliminated 700+ items • Basket analysis showed many of these items were present in the most profitable baskets • allows data mining for Lays vs. Pringles analysis • HEB restored these items and added 700 more in the gourmet area

  17. Update to HEB case (cont.) • Moved to 12th largest grocery chain • largest private company in Texas • Expanding into Mexico and Louisiana • Chosen retailer of the year 1996 • 1998 sales increased to $7B with 7.7% growth

  18. Lessons Learned from Case • Revolutionary changes take time • threat of Wal-Mart always there • Creating an IT infrastructure can lead to future opportunities • High staff turn-over with cultural change • Previous IT successes can determine level of success in future IT projects • Cross-industry collaboration can work

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